“We’re looking for funds that are in the ‘sweet spot’ – established teams and good track records, but not those topping the sales charts,” said Chris Metcalfe, investment director at IBOSS.
Metcalfe tends to view mass inflows and any form of soft-closure as a warning sign, telling FE Trustnet earlier this week that it’s prompted him to sell out of some of the industry’s biggest names such as M&G Global Dividend, Schroder UK Opportunities and Newton Asian Income.Here Metcalfe and two other experts highlight the funds that they believe are in “the sweet spot” for investors.
Old Mutual Global Equity
“First and foremost they have an established team,” said Metcalfe. “It’s one that hasn’t been on the radar for investors for very long.”
“When we first invested it was £25m and it’s done very, very well since then. We like to get into stories early and it’s worked out very well for us.”
“We like how the fund is run, with a team-managed process. It’s grown to £130m and given the marketing power of Old Mutual I’d imagine it’s one that could come under pressure in the future. However, we’d hope that’s a long, long way off.”
Old Mutual Global Equity is run by the trio of Ian Heslop, Mike Servent and Amadeo Alentorn, who took over in 2004.
Performance was relatively mediocre in the early years, but a change in process has seen performance improve markedly.
FE data shows the fund is a top quartile performer over three years with returns of 72.74 per cent.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
The fund is also top quartile over one year.
Old Mutual Global Equity hovered around the £20m mark between 2011 and 2013, but has had a spike in inflows since early 2013.
Metcalfe says the team have voiced no concerns over the pace of inflows, pointing out that their global remit means that capacity is likely to be well into the billions.
Heslop and his team have maintained a relatively consistent regional positioning, with around 50 per cent in North America, 20 per cent in continental Europe and 15 per cent in Asia Pacific.
Their UK exposure has typically been less than 10 per cent, making it an attractive option for investors looking to diversify their domestic exposure.
The five-crown rated fund has ongoing charges of 1.24 per cent.
Artemis European Opportunities
Ben Williams, an investment manager at Saunderson House, highlights a top performing European manager who is very much off the radar.
“Mark Page at Artemis has one of the best track records in European equities,” he said.
“He was hidden away at LV= so is not that well known, but from 2004 to 2010 he was the only manager to beat the index every year and this has continued at Artemis.”
The £106m Artemis European Opportunities fund has indeed made a very strong start since its launch in October 2011, beating both its sector and benchmark with returns of 37.61 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
Page and co-manager Laurent Millet beat the index in both 2012 and 2013, but is behind so far this year.
Square Mile notes that Artemis European Opportunities is a pragmatically run fund that aims to generate consistent, though not aggressive, outperformance.
The managers tend to target quality businesses but are pragmatic enough to drop down the spectrum when these look overvalued.
“This fund could be viewed as more of an all-weather strategy, aiming to ignore market fads and focus on churning out reliable returns each year,” Square Mile said.
Page and Millet have little weighting to peripheral Europe, with a combined 12.6 per cent exposure to Spain and Italy their only exposure.
French and Swiss companies dominate the portfolio, making up more than half of assets overall.
Artemis European Opportunities has ongoing charges of 0.91 per cent.
Franklin UK Managers’ Focus
Metcalfe sold out of Paul Spencer’s £975m Franklin UK Mid Cap fund earlier this year due to concerns over size and valuations in the FTSE 250.
He chose Franklin UK Managers’ Focus, which is also headed up by Spencer and fellow FE Alpha Managers Ben Russon and Mark Hall, as its replacement, because it has more of a multi-cap focus.
The move has proved to be well-timed.
FE data shows Franklin UK Managers’ Focus has weathered the recent turbulence in markets much better than its mid-cap focused rival so far this year, though is still behind the FTSE All Share with losses of just over 3 per cent.
The fund’s longer term record is much better though, boasting top quartile returns over one, three and five year periods.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
“Again, the fund was £20m when we first invested. It’s up to £72m now but it’s still small,” said Metcalfe.
“In February we decided to pull out of the mid-cap fund. Paul [Spencer] has a very good record running mid-caps and small-caps, but we were a little nervous about how well the market had done, and it’s reaching its £1bn capacity.”
“We wanted to hold onto his expertise but in a less focused fund, and Managers’ Focus was a good fit. It’s a great size, has great management, and I also like the fact that it’s a firm based out in Leeds. It’s only a bonus, but the team says it keeps them from hearing all the market noise down in London.”
The portfolio is equally distributed between the stock ideas of Spencer, Russon, Colin Morton and Richard Bullas, with Hall deputising.
It has 39 per cent in companies with a market cap of less than £1.5bn, with 13 per cent in mega caps exceeding £50bn.
Top-10 positions include AstraZeneca, Dixon Carphone and St James’s Place.
Franklin UK Managers’ Focus has ongoing charges of 0.95 per cent.
Argonaut European Enhanced Income
“One fund we have been long-term investors in that seems to fly under the radar of many fund pickers is Argonaut European Enhanced Income managed by Oliver Russ,” said Gavin Haynes, managing director at Whitechurch Securities.
“The fund offers an attractive yield and hedges out euro exposure, which has helped it in being the best performer in the Europe ex UK sector over the past year. However, the fund remains below £100m.”
FE data shows the £66m fund has returned an impressive 10.12 per cent over the past 12 months and is also ahead of its peers and benchmark over three years and since its launch in 2010 – albeit marginally.
Russ operates with a significantly lower volatility than his peers and has generated a yield of 4.65 per cent – one of the highest figures in the sector.
Performance of fund, sector and index over 1yr
Source: FE Analytics
Williams is also a fan of Barry Norris and his team.
“Argonaut has an excellent process but isn’t particularly well known,” he said.
Russ and co-manager Greg Bennett are heavily skewed to more stable and developed European economies such as Germany, France and Scandinavia.
Italy is an exception however, accounting for 11.9 per cent of assets – an overweight position of 6.7 per cent.
Financials is their biggest sector overweight.
The five-crown rated European Enhanced Income fund has ongoing charges of 0.98 per cent and is currently yielding 4.65 per cent.
CF Miton UK Value Opportunities
“Another fund that we currently believe to be in the sweet-spot is Miton UK Value Opportunities,” said Haynes.
“The fund has produced impressive returns since launch [and was] in the first quartile last year.”
Performance of fund and sector since launch
Source: FE Analytics
“We hold managers George Godber and George Hamilton in high regard. This style specific fund is beginning to attract attention but at £115m remains scalable,” he added.
In spite of the fund’s high exposure to small and mid caps, Godber and Hamilton have held up very well this year, achieving top decile returns of over 4 per cent year-to-date.
The team remains heavily invested in housebuilders in spite of worries over the pace of the UK economic recovery. Redrow is the number one holding.
Godber had a great deal of success running money with fellow deep value manager Henry Dixon on the FP Matterley Undervalued Assets portfolio.
It was recently announced that the Miton fund would take over the ownership of the Matterley portfolio in the coming months, which is currently £82m in size.
CF Miton UK Value Opportunities has ongoing charges of 0.94 per cent.
